@benedetta50
How is Bitcoin utilized in decentralized lending?
Bitcoin is increasingly used as collateral in decentralized lending platforms through tokenization methods like Wrapped Bitcoin (WBTC). Users lock their BTC in smart contracts on platforms such as Aave or Compound to secure loans in stablecoins or other cryptocurrencies. This allows holders to access liquidity without selling their Bitcoin, preserving long-term value while obtaining capital for other investments. Decentralized lending relies on overcollateralization to mitigate default risk, ensuring that if borrowers fail to repay, lenders receive the underlying collateral. This process expands Bitcoin’s utility beyond mere holding, integrating it into broader DeFi ecosystems. However, borrowers face risks related to market volatility and potential liquidation if Bitcoin’s price falls sharply.
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